Google Reports Disappointing Earnings Due to Headwinds and Competitors

Even tech behemoth Google is facing pressure from decreased advertiser spend ahead of tough economic conditions. Google parent Alphabet reported a net profit of $13.9 billion in the third quarter, down 27% from a year earlier, while revenue climbed 6% to $69.1 billion, lower than analysts' estimates of $70.9 billion. “This disappointing quarter for Google signifies hard times ahead if market conditions continue to deteriorate,” said Evelyn Mitchell, principal analyst at Insider Intelligence. Aside from advertisers reducing spend, the sluggish profits in a consecutive quarter are due to increasing its workforce as well as investments into its Cloud computing business and lower-margin lines like hardware. While YouTube’s ad business suffered declining ad revenues for the first time, signaling pressure from competitors like TikTok. This slump follows Snap's figures from last week and puts pressure on Meta ahead of its earnings. “There's no question we're operating in an uncertain environment, and that businesses big and small continue to get tested in new and different ways, depending on where they are in the world,” said Philipp Schindler, senior vice president and chief business officer on Alphabet's earnings call. “When it comes to how we're helping, our focus remains unchanged.” That focus is artificial intelligence (AI) seen in products like Google Lens, which it claims people are using to answer more than 8 billion questions every month but also applying AI in advertising through creative testing and audience targeting. Another focus is its Cloud computing business, which generated $6.9 billion in revenue, a 38% increase. But the business line lost $699 million in the third quarter, compared with $644 million a year earlier. Google Is Backing Cookieless ID Solution Seller-Defined Audiences Google Search and other advertising revenues of $39.5 billion in the quarter were up 4%, led by travel and retail, but lower than previous quarters. Typically, Search ads have been fairly resilient in tough economic conditions with marketers continuing to direct money toward them since they perform well. But a very strong quarter the year prior makes for a difficult comparison, according to Google execs. Furthermore, Network advertising revenues of $7.9 billion were down 2%. YouTube advertising revenues of $7.1 billion were also down 2% on analysts' expectations of $7.4 billion, the first time the video platform has reported a loss, showing the growing dominance of rivals like TikTok. YouTube continues to invest in its TikTok competitor product Shorts, which it claims has 1.5 billion users every month and 30 billion daily views. YouTube recently improved creator monetization for Shorts to help buoy ad revenue. In the call, execs repeated confidence in the early results, as well as the belief that YouTube is well-placed to capitalize off the growing move to streaming. The executives reiterated sharpening focus and utilizing resources effectively in order to “make sure we are set up for the next decade of growth ahead,” said CEO Sundar Pichai. The importance of talent was also repeated. Google hired more than 12,000 staffers compared with July figures, noting that hiring has slowed—as it has with other tech companies—and numbers will be lower in the fourth quarter. A period of recalibration will give Alphabet the “chance to make sure we are, with clarity, identifying what are the most important areas and making sure we are directing our incremental investments toward those and as well as where we can realign,” said Pichai.

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Google Reports Disappointing Earnings Due to Headwinds and Competitors

YouTube ad revenue declined for the first time, falling 2% below analysts' expectations

Lucinda Southern

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